Complete Story

07/30/2009

The Power of the Bundle

By: Paul Rodriquez, Cable Tech Talk

NCTA has released a new white paper prepared by Microeconomic Consulting & Research Associates, Inc. (MiCRA). The report is entitled Benefits to Consumers from the Transformation of the Cable Industry. In part it is about the cable industry’s transformation from a simple analog video provider to a provider of multiple services over an advanced digital communications platform. But more simply, it’s about the benefits to the consumer of cable’s Triple Play of voice, video and data.

Here’s a typical data point from the report, that shows how far we’ve come over the past decade.

A typical cable subscriber in 1998 paid $27.00 ($37.00 in 2008 dollars) for a few dozen television channels (composed primarily of local broadcast television, local public, educational and governmental (“PEG”) channels, superstations, and a handful of cable networks). In 2008, this same subscriber could purchase a suite of services, for approximately $100 per month, which included digital voice service, high-speed data service, and digital video service offering hundreds of channels of increasingly popular cable network programming, high-definition video quality, and large libraries of on-demand programs.

A look back to the 90s, before our fiber buildout, shows how powerful the impact has been of cable’s improved hybrid fiber-coax architecture. Back in ‘98, only a small fraction of subscribers were taking services like digital video, phone and high-speed data access. For example, there were 1.4 million digital subs in ‘98 (according to SNL Kagan) and there were 40.4 million in 2008.

In analyzing the power of bundling, the report says:

The marginal cost of providing an additional customer with any of the three services (voice, data, or video) is low because of the large economies of scale in deploying a wireline (or fiber-based) network. Moreover, once a customer has subscribed to one service, the marginal cost of providing that customer with a second and third service is even lower.

In addition, these savings can be passed on; according to the report, “[b]undled services are priced between $5.00 and $50.00 lower than the sum of the prices of the components.” MiCRA estimates that that cable’s investments - $129 billion spent in upgrades between 1999 and 2008 - have resulted in about $35 billion in annual consumer benefits. The study shows that the benefits from offering new services and new service bundles are shared across all demographic groups, including lower-income households.